Friday, February 29, 2008

- Baird is out with a good call on Alkermes (NASDAQ:ALKS) after Eli Lilly (LLY) announced that it has received a Not Approvable Letter for Zyprexa Long-Acting Injection (LAI) for the treatment of schizophrenia.

This is very positive for ALKS, as it delays or possibly removes a potential threat to Risperdal Consta. FDA cited concern over the excessive sedation that was seen in approximately 1% of patients in clinical trials, and the agency needs more information to better understand the risk and underlying cause of these events.

Firm notes JNJ submitted an NDA for another potential competitor to Risperdal Consta, paliperidone palmitate, on 10/29/07. Given Invega's poor launch (less than 2% market share after one year), they do not think that paliperidone palmitate is a serious threat to Risperdal Consta. Notes that JNJ is committed to Risperdal Consta as evidenced by the heavy investment in Phase IV clinical trials for the product.

Reits Outperform and $24 tgt on ALKS saying they are buyers of the stock.

Notablecalls: The LLY news hit in pre-mkt yesterday, yet there was no reaction in ALKS. I think we will get one today.

Thursday, February 28, 2008

EnerNOC (NASDAQ:ENOC) got killed yesterday following weaker than expected results and there may be some more downside eary on as Jeffco is out downgrading their rating to Hold from Buy this morning (tgt goes to $18 from $54). Yet, we have some interesting defenses out as well, which indicate the stock may be a bounce candidate:

- JMP Securities is maintaining their Market Outperform rating while decreasing their price target from $50 to $35. EnerNOC's stock took at 36% haircut yesterday and is now down 67% year to date. While all metrics during the quarter pointed in the right direction -- higher than expected MW under management in 4Q07, above average MW additions QTD, and higher gross margins -- the company took a beating from investors. Higher than expected operating costs drove EPS lower than analysts' expectations, resulting in a miss. In addition, management's comments indicating that they plan to grow the engineering bench by 40-50% by the end of the year added more fuel to the fire. Lastly, management's comments indicating that the average price per MW could be down slightly in 2008probably helped send investors running.

They see this as a unique buying opportunity noting that with the demand response market growing rapidly and average 5-year contract ROIs north of 20% in EnerNOC's business, they believe management's objective to rapidly expand sales while incurring higher upfront costs is warranted.

- Morgan Stanley while maintaining their Underweight rating on the stock notes that no matter how the long-term model plays out, they believe there could be a good trading opportunity around the strong summer season. Firm expects ENOC to report strong results starting in June of each year due to additional capacity ramping in the PJM territory and increased energy payments from outages. If they are correct, we could see slightly stronger results in Q2 (from a one month increase in June) and significantly stronger results in Q3. Believes this strong seasonality could provide a good trading opportunity if the market reacts to these positive Q/Q trends.

Notablecalls: The stock is way down from around $50 in just 2 months. It's going to bounce today.

- Deutsche Bank is out with a positive call on Dts Inc (NASDAQ:DTSI) saying that following 350 store retail check yesterday, they are optimistic Blu-ray can have a near-term positive impact on DTS in the 1H08 as pent-up demand appears to have accelerated Blu-ray player sales over the last two weeks. Firm reiterates their Buy rating as DTS' surround sound technology is mandatory on all Blu-ray players, suggesting an addressable market of $150m+ in revenue (vs. $50m today) and peak EPS of $2.00-$4.00 per share.

DB notes they were surprised to discover that 43% of Blu-ray players in stores are sold out. There has been an increase in demand over the last two weeks. This suggests that DTS is likely to experience the inflection point in the Blu-ray cycle earlier than the firm thought, possibly 2Q08. This faster adoption could drive an additional $0.05- $0.10 EPS to their $0.73 pro forma EPS forecast for 2008.

DTS' strong secular drivers create a stock with the potential to double over the next several years as the Blu-ray cycle develops. DB's $30 target is based on their DCF and embeds 3% terminal growth and a 15% WACC. Over the long-term, they believe a $40+ stock is possible based on peak earnings of $4.00 per share.

Notablecalls: DTSI's a mover and I think this DB call is enough to create nice buy interest in the stock today.

Wednesday, February 27, 2008

- Citigroup is out very positive on Marathon Oil Corp (NYSE:MRO) saying they believe the equity market is significantly underestimating the earnings impact of imminent growth in oil and gas production - and in particular, the nuances of MRO's tax position in Norway that should become evident in 2H08.

The kicker is the pending start-up of the Alvheim project in Norway, scheduled for 2Q08 that is the key driver expected to lift oil and gas production by around 16% in 2008 alone (17% inc oil sands), and skew the production mix towards a greater mix of oil.

MRO retains over $1.5bn of legacy tax losses that will fully be fully recovered when production commences. Put simply, early years production from Alvheim – onstream 2Q08 - will have no regional tax and reasonably adds >$1bn to earnings in 2009

Firm is raising their earnings estimates by 5% and 10% respectively in 2008/9 to reflect this impact – but with a conservative oil price deck and higher oil leverage the risks to ‘street’ expectations lies on the upside.

Reits Buy and $82 tgt saying they view MRO as one of the most attractive of the US oil majors for 2008.

- Piper Jaffray's Gene Muster is also out positive on Apple (NASDAQ:AAPL) this morning noting that while it is way too early to make a definitive call on March qtr iPod units, they have analyzed the first month of NPD data (Jan.) for the quarter and found that it suggests iPod units of 9.5m-10.3m.

Street consensus for March qtr iPods is 10.8m, representing a 2% y/y increase;the midpoint of the 9.5m-10.3m range suggests a 6% y/y decline.

Firm sees this data point as a slight positive, given recent Street chatter of a very weak iPod number for the qtr, and notes that the monthly contribution they have factored in for Feb. & March may be prove to conservative given the iPod shuffle price cut on 2/19, leading to a more back-end-loaded qtr for iPod units.

Reits Outperform, Alpha List status and $250 tgt.

Notablecalls: So, now we have 2 pos/supportive calls on AAPL this morning. My conviction regarding the n-t bounce thesis grows. As I noted below, I think the slowdown in iPod's has been fully priced in here.

- Morgan Stanley is out positive on Apple (NASDAQ:AAPL) this AM saying they continue to believe new product announcements and margin expansion will drive AAPL shares higher in 2008. In the near-term, unit expectations need to come down as the product line transitions to higher ASP offerings (iPhone, iPod Touch) But, strong Mac shipments and Apple’s ability to leverage favorable component pricing, leave their CY08 above consensus EPS unchanged.

Beyond industry checks, the firm would point to a 34% YoY increase in R&D and 170% YoY increase in Steve Jobs’ airplane expense in the December quarter as signs Apple is preparing for meaningful product launches.

Apple’s 10-Q shows surprising margin leverage outside the US and a comparison to other retail brands confirms that International expansion tends to be a positive influence on revenue growth, operating margins and valuation. In the near-term, they highlight favorable component pricing that will put upward pressure on gross margin.

Monday, February 25, 2008

- Morgan Stanley is out with a somewhat cautious call on Vornado (NYSE:VNO) that might work as a short in this environment.

The New York Times reported on Saturday that plans for the $14B redevelopment of Penn Station are close to failing due to the softening economy, government financing, and political inertia.

MSCO notes that were plans for the Penn Station redevelopment to fall through, as suggested inSaturday's New York Times, they might have cause to re-examine their Overweight rating on VNO’s stock. However, the firm believes it is premature to assume that this complex and highly political project will simply be abandoned, given its importance to NYC and the Hudson Yards redevelopment project, not to mention the number of well-connected developers involved.

In a worst case scenario, in which the project were not to happen at all and VNO is somehow unable to obtain approval for other large projects in the area, they estimate a maximum $11 adverse impact on their $94 price target, reflecting the elimination of previous discounted value of work on the site.

This project represents a significant growth opportunity for VNO, given its 50% development interest and the likely significant positive impact the project would have on its existing assets in the Penn Plaza area.

While the possible Penn failure may be mostly in the stock the prolonged political wrangling over this project, along with market skepticism about the New York office market could keep sentiment negative on this stock for some time.

Notablecalls: The article isn't yet circling the trading desks but I think it will. From what I've read on the Penn project (5-7 mlnsqr. ft.), it's one of the most important VNO has.

MSCO's call (while a defense) is cautious enough to create significant pressure in VNO in the n-t.

Oppenheimer is out with a fairly major call saying they believe the next near term issue of focus for financial investors will be actual loan loss exposures, reserves, necessary provisioning, and subsequent earnings power. Firm is cutting their FY2008 and FY2009 estimates on the large cap banks by an average of 29% and 13%, respectively, based upon their updated accelerated loss curve assumptions as well as estimates for 1st quarter write- downs for leveraged loans.

The most drastic cut is aimed at Citigroup (NYSE:C):

- Opco is lowering otheir 2008 estimate to $0.75 from $2.70, although they believe their revised estimates could still prove optimistic. As C's balance sheet is highly constrained from both an inability to sell lower quality assets due to illiquid markets as well as more assets coming back on its balance sheet due to illiquid markets, the firm continues to believe C will explore every option to sell assets. They continue to believe C will need to sell up to $100 billion in assets. They also continue to argue that under duress, C will likely be forced to sell what it can and not what it should. C will likely only be able to sell its better earning assets for any type of positive return. This, on top of the above mentioned earnings headwinds, will create an intensely challenging earnings year for the company.

Firm believes C shares could fall to levels during the last credit cycle of 1990/1991 or to .7X a share, or below $16 per share, or 36% below current levels. Note, they estimate tangible book value at just over $10 per share.

As they argue in our larger companion piece also published today, firm believes loss rate acceleration is currently grossly underestimated by consensus estimates. Reits Underperform on C.

Notablecalls: The only question is - is it Actionable?

Under "normal" circumstances I would be calling it an outright short. But now there's this ABK situation that complicates things. If we have positive deal news from ABK this morning, all the major banks will go up big time.

Friday, February 22, 2008

It's fairly quiet out there this AM. Think the biggest call seems to be Morgan Stanley's upgrade on Discover Financial Services (NYSE:DFS):

- They are upgrading DFS to Overweight from Underweight as they think it will beat consensus estimates in 2008, thanks to more prudent underwriting (lower credit losses), more leverage in the net interest margin to Fed rate cuts, and limited vulnerability to gapping spreads in the unsecured funding markets. It now looks like more aggressive peers, such as AXP and COF, may have taken on more credit and funding risk than they should have, and the firm expects those companies to disappoint consensus estimates. They regard COF as exposed to subprime card and auto loans. AXP may be in for further problems as prime mortgage troubles spread through its card portfolio, and it is also heavily reliant on unsecured debt, where spreads are now widening. Longer term, they see value in the DFS spin-off story, which has yet to play through to its conclusion.

Firm's new tgt on DFS is $24 (up from $15).

Notablecalls: Looks like a really solid call from MSCO. I expect the stock to trade above $15 today.

Thursday, February 21, 2008

- Citigroup is out with an interesting call on AbitibiBowater Inc (NYSE:ABH) saying they have learned the co, with nearly 50% of North American newsprint capacity, has announced a$60/tonne price increase to be phased in at $20/month April through June.

If successful, they believe ABH would be comfortably free cash flow positive in the 2Q (net of closure costs). Newsprint prices are $620/tonne in February, up from $560 in October. A $20/tonne increase (to $640) is slated for March. The 2Q increase would result in $700.

Citi's “optimistic” estimates for ABH assume that US newsprint prices range between $655-$665/tonne during the second quarter and end the year at $695. However, the ABH move would get newsprint prices above their year-end projections by mid-year. Could even they be low?

ABH’s CFO and Treasurer will present today afternoon at an investor conference in NY. If the bond market is “correct” (with the April 1st bonds trading today around 85), wouldn’t these gentlemen be grabbing pails to bail water back in Greenville?

Citi notes they actually have the sheer audacity to believe management and do not see the sky falling. Firm's target remains $60. Reits Buy.

Notablecalls: WOW! I said WOW! This is a $16 stock, ladies and gentlemen, meaning Citi's tgt represents almost 400% return. Must say I've never seen this kind of stuff coming out of a tier-1 firm. Maybe only in biotechs.

This call has it all:

- Beaten down stock in a out-of-favor sector.

- Analyst coming out with an unexpected catalyst (price hike)

- Huge target

- Management presenting on the same day (& analyst expecting some positive commentary).

Some troubling news for Apple (NASDAQ:AAPL) and Sandisk (NASDAQ:SNDK) from iSuppli this morning:

"..In an early warning sign of consumer weakness, Apple Inc. has slashed its 2008 NAND order forecast significantly and has informed suppliers that its demand growth will slow in 2008 compared to 2007, according to iSuppli sources. This is expected to have a huge impact on the NAND market..."

Wednesday, February 20, 2008

Another stock that is complete free fall is ALXN which has dropped by 17 points since they reported earnings last week. ALXN sells a drug called Soliris which is the only drug approved to treat PNH a rare blood disorder that causes the destruction of red blood cells.

The stock fell despite the fact the company reported sales of Soliris which beat estimates and increased guidance for 2008. What killed the stock was a downgrade from Wachovia on the assumption that sales would slow in 2009 as the company fully penetrates the PNH market.

Whats important to note that other than Germany the company has really not made any inroads in to the European market. In fact the company just recently launched the drug in the UK. In Asia as well the drug has not yet launched and will probably not do so for at least another 18 months. So although here in the US the drug the market will fully penetrated by the end of this year there is still a lot of worldwide growth to come.

Another factor to consider is the company's pipeline where they are studying Soliris in a number of new indications such as myasthenia gravis and multifocal motor neuropathy. A new indication for the drug would obviously open up a whole new market for which current estimates have not yet factored in .

Although this is not the best market for catching falling knives I am going to start a position in ALXN here at 58 . If it falls more I will consider adding.

- Broadpoint is downgrading their rating to Neutral from Buy. Firm notes having a Buy rating on this stock has been much like havinga javelin through their head: it feels even worse than it looks. Time to pull the javelin outand put this call in the "lessons learned" folder. Firm expects estimates to come down again during the year and thus does not consider NTRI shares attractive at any price greater than $15.

- Oppenheimer notes that although NTRI's 4Q07 results were in-line with consensus (excl. lower than expected tax rate), 1Q08 and 2008 guidance are significantly below expectations. New customer growth for 1Q08 so far remains negative. FY2008 revenue and EBITDA is expected to contract 7.6% and 31.8%, respectively. Firm continues to foresee a very challenging 2008 for NTRI with substantial revenues and earnings risks.

They are reducing 1Q08 estimate to $0.28 from $0.88, 2008 estimate to $2.06 from $2.89, and FY09 estimate to $2.50 from $3.43. Specifically, they estimate A&M expense to increase by 40%+ in 1Q08. There is no change to Perform rating.

- Citigroup is more bullish on NTRI, sticking to their Buy rating while lowering tgt to $29 from $38 saying that discussed in their Feb. 7th preview note, they expected mgmt to provide conservative guidance.

Mgmt mentioned trends through January were weak due in part to the soft economy. Given its $300 price point (for a 30 day supply), sales may be impacted to some extent by a weak economy. Encouragingly, they do not believe the co lost market share given weakness at other diet cos.

NTRI faces very tough compares in 1H08. Therefore, if we see continued stabilized trends in 1H08, NTRI should experience decent growth in 2H08. Shares still appear attractive at 8x '08 EPS.

Notablecalls: Even with ests slashed way below previous levels, the shares still trade below 10x 2008 EPS. There's a close to 70% short interest in the name. It's down big over the past 6 months and down an additional 25% in pre-mkt. The shorts have won. No question about it.

I think they will be ringing the register on at least some of the gains they are now sitting on. I know I would.

Hence, the stock's a buy for a bounce around the $17 level. Not because the business is recovering but rather because of the shorts. Tight leash as always.

Tuesday, February 19, 2008

Hearing Street chatter Suntech (NYSE:STP) guidance tomorrow morning will be disappointing on the GM side as the co has been struggling to get poly supply deals done, forcing it to buy from MEMC & Hemlock on the spot mkt.

NCN Solar comments:

Just a little comment on that, they will likely buy less than 10% of supply on spot but they likely won't go for more supply considering spot rates are over $400. About 50% is long term 40% is sort of in between, sort of deals they make, meaning not as good as long term, but much below spot.

Regardless, can't expect a great STP report, tho long term, you can't overly punish them for near term poly price issues, meaning there will be time to buy this one back its a supply issue, not demand, and I'm looking to buy FSLR tomorrow, if the STP report is weak in fact, and the group trades lower.

- Cowen is out positive on Suntech (NYSE:STP) saying they believe the co is poised for a beat-and-raise quarter. Guidance for 2008 shipments ought to be revised up. STP is targeting YE capacity of 1GW, so H2 upside looks do-able with likely incremental silicon supply. STP has an aggressive/diversified silicon procurement strategy. High spot prices seem offsettable by rising conversion efficiency and scale. New Pluto technology and product diversification should expand the P/E. Sees 50%+ upside vs. the market in 12 months and reiterates Outperform rating.

Thinks management may raise 2008 guidance.

They believe STP shares do not yet command full value for its technology and product diversification efforts. As Pluto lines ramp, higher conversion efficiency should aid GM. And, other new products like thin-film for BIPV and Andalay modules further differentiate it from competitors.

Notablecalls: Note that Lehman is out on STP this AM cutting their tgt to $75 from $100 while keeping their Overweight rating.

The Cowen call strucks me as somewhat surprising as I happen to know that Suntech's management sounded a bit cautious couple of weeks ago when they spoke to a group of investors. Of course, no guidance was provided (reg fd). Yet, now we have Cowen out saying they feel STP is going to have a beat & raise qtr when they report tomorrow morning.

The cautious tone has attracted some short-sellers over the past weeks, so I would not be surprised to see some short covering on heels of Cowen's "beat & raise" call. Think the short community has too painful memories from the FSLR short last week.

We have couple of firms commenting on Onyx Pharma (NASDAQ:ONXX) after partner Bayer announced that Nexavar's Phase III trial in lung cancer was stopped early by the trial's data safety monitoring board because of futility.

- Morgan Stanley maintains their Overweight rating and $65 tgt saying the failed ESCAPE trial for Nexavar in non-small cell lung cancer (NSCLC) is a disappointment, and they expect the stock to be down ~5-10% on the news. However, their numbers, price target, and rating are based upon their thesis in liver cancer, particularly ex-US, and they continue to believe the Street underestimates this $500 million + opportunity. MSCO making no changes to numbers or price target.

- Cowen notes they did not have any estimates for lung cancer in their model. However, they believe that some investors and analysts did. Moreover, even for those who didn't have explicit lung cancer estimates, the option value of lung cancer likely supported several points in Onyx's stock price. Firm expects Onyx will be weak today no matter what Q4:07 Nexavar sales number is reported later this morning.

If ONXX is significantly weak today they believe it would provide a buying opportunity. Maintains Outperform.

Notablecalls: I see some pre-market trades crossing around 15-20% below Friday's close. Make sure you're involved on the long side as expectations regarding the lung cancer trial were very modest. I think MSCO's right with their 5-10% downside estimate. That would equal to a $40+ stock price, not the $35-38 level we are seeing in the pre mkt. I suspect we're dealing with some daytraders who are simply shorting the thing down 20% without any real knowledge of the situation.

Oh and btw, ONXX is a monster bouncer. Would not be surprised to see it trade over $40 level today.

Sunday, February 17, 2008

Last week I asked NCN Solar, a trader closely following & trading the Solar space give us an overview of the current state of the things. I talk to NCN Solar almost every morning going over the most important developments - a great help to undestanding the rapidly changing sector.

I put some thoughts together more to educate you as to what is happening, and perhaps will make it easier to capitalize on coming news in 2008. It will continue to be choppy and unpredictable, so its best to just be prepared for what may happen and to know how to react.

There seems to be more private equity money going into alternative energy than in any other sector. The high oil prices of the last few years as well as climate concerns, has led to a quest to reach grid parity with electric rates. Most of the ways to play the growth in the US markets involve stocks in the Solar sector. There are 2 well known technologies: Thin Film which includes First Solar (NASDAQ:FSLR), Energy Conversion Devices (NASDAQ:ENER), and many exciting private companies and Silicon which is led by SunPower Corp (NASDAQ:SPWR), Suntech Power (NYSE:STP) and many others.

Let us take a closer look at both these groups. FSLR is the clear cost leader. They developed Thin Film CDTE technology which doesn't require the currently expensive polysilicon, and is a quick production process which FSLR has successfully copied at their other facilities. There are certain geographies, such as areas of Germany, where no other product can come close to comparing. As they increase their conversion efficiency to 12% of the sunlight to power, and continue to increase production and yields, they appear well in the lead towards grid parity, at a point which this growing market expands to incredible levels. There are a number of private companies, NanoSolar, Miasole etc. as well as ASTI and DSTI which are working on Thin Film CIGS technology in a well financed drive to reach what FSLR has accomplished. There are various challenges in scaling this technology, and its certainly hard to know exactly how close these companies have come. The Thin Film amorphous technology, is a bit difficult to understand, because the conversion efficiency achieved so far, does not seem high enough to compete.

As we enter 2008, no one comes close to FSLR in terms of cost per watt. So why is there strong interest in anyone else? In the residential market, it does not appear that FSLR will be a player, and I’m not sure they are even suitable for that. Because FSLR has lower efficiency, they require more panels, which means the amount of roof space, or cost of land, can tilt the economics. There are also various geographies, where perhaps the amount of sunlight or heat, can work better for a silicon company. As we stand right now, the costs for silicon panel companies are much higher, but they are greatly influenced by the inflated level of polysilicon prices. The current poly demand dwarfs the supply. This affects the companies in different ways, and its worth looking at which solar stocks have most of their polysilicon at contract rates, and which need to purchase their required poly at spot prices. At some point, the additional supply from China will come online, and one would expect the prices to drop significantly. A company like WFR which benefits from selling polysilicon in the market, will have to deal with the lower prices in the future, though at this time, they are doing very well. Once these prices do come down, the buyers of polysilicon, STP SPWR etc. will see their costs dropping and can become more competitive with FSLR in more locations, and can start the move towards grid parity. At this point SPWR is a technology leader with their high efficiencies, and tracking systems, and STP is a leader helped by their low cost operation and low taxes. We will see if anyone else can make the leap to the top tier.

The important thing to understand is that what is good for one solar company may not mean much for another. We recently saw FSLR blow away estimates for the quarter and guide higher. This may not mean that the silicon players will have a good quarter. But it does show what can be achieved, when your costs are low, and when you run the operation smoothly. A future drop in polysilicon prices would be a big help for a polysilicon company that buys at spot prices, but may not mean as much for a silicon company that has a great supply, and would probably be negative for FSLR because other companies will become more competitive in some markets.

What I look for in 2008, is that we will see the winners and the losers start to emerge. The same way that many tech companies did not emerge from the internet boom, many wont succeed in solar. But the ones who will, meaning the ones that achieve grid parity, or assist companies in achieving, will be continued winners. We should begin to see more poly supply come on line before the end of the year, and a drop in poly prices will help the industry. At a certain point, the silicon players may decide they would rather not sell a panel even if there is demand, because they don’t want to pay up for poly. But that would lead to this coming drop in prices. Utility solar deals will be big news this year. FSLR has suggested that there will be multiple pilot projects for utility solar deals in the United States and a number of companies will be in the race for utility deals. This may be helped by the expected extension of solar tax credits which should take place before the end of the year. There is bypartisan support for these credits, and once the politics get played out, it seems clear that the bill will get passed. We may hear more about other solar technologies. EMKR is a player in CPV (Concentrated PhotoVoltaic) which has high conversion efficiency, and concentrates the sunlight on to a cell. There is also strong potential from solar thermal technology. We should also here more about the progress on Nanosolar and other new entrants. There likely will be more ups and downs then we saw in 2007, which was virtually all up. But there should be some big winners once again from some old and perhaps some new names.

Friday, February 15, 2008

After I read your post this morning prior to the open, I put in an order for FEB 100 Calls at .25 cents. I picked up 100 contracts around the time the price was 97$ and sold them for 3$ each at 2 p.m. when CMG was over 103$. Thanks for the excellent information. I wish every option expiration day was like this....

- Piper Jaffray reits their Buy and $200 (!) tgt saying that should the market penalize the company for 60% earnings growth (i.e. stock is trading down after market following in line results) they suggest investors use the pullback as a buying opportunity.

Despite difficult market conditions, Chipotle continued to (at least) meet expectations as fourth-quarter earnings increased 59.6% to $0.53 per share; in line with PJ's estimate. Restaurant profit margin increased 210 bps to 22.1% due primarily to the company's ability to effectively manage expenses as well as sale leverage, or the 10.6% same-store sales result.

- Cowen vigorously defends CMG shares on likely weakness this morning after CMG posted '+$0.04 better-than-they-expected' 4Q07 EPS of $0.54 (ex. $0.01 charge) vs. their $0.50E and in-line with mgt's inference at The Cowen and Company Consumer Conference that "4Q07 EPS growth will likely be about in-line with current Consensus' $0.54E'). The headline here is 4Q07's EPS performance of $0.54 was CMG's best operating quarter of 2007 and any model to the contrary is simply intellectually challenged. As such, they would view a sub-$100 CMG share-price open today as an historic buying opportunity for 'the next 5,000+ unit global restaurant company' at such an exciting, early stage in its development.

Notablecalls: What can I say. Buy the stock. It's going to bounce. Would not be surprised to see $100+ level as soon as today! (stock traded as low as $92 in after hours action).

Note there's a 40%+ short interest in the name. The shorts will probably not attempt to chop it down but rather use the weakness to cover! The stock is down from $150.

Thursday, February 14, 2008

There are variation of Ericsson (NASDAQ:ERIC) or Amdocs (NYSE:DOX) for Synchronoss (NASDAQ:SNCR) rumor making rounds today and I'd like to share my initial thoughts on the topic. First of all, Synchronoss does make a great acquisition target for a number of reasons:

- Despite lowering the bar at the last earnings conference call, the co is still growing revenue 25% this year.

- Co would greatly benefit from added scale when acquired by bigger player with presence at the telecom operators.

Despite its internal struggles, Ericsson does fit the profile of potential suitor. ERIC acquired LHS AG in June 2007, making entry to the OSS (operations support systems) space. Adding SNCR would give Ericsson another fitting piece to restore growth.

Amdocs is also making push to the OSS mkt and SNCR would be logical tgt for them, with margins already above those of DOX. Also, the AT&T link is there with both cos having AT&T as a major customer. And think of all the cross-selling possibilities the deal would provide.

Why would either company make an offer? First and foremost, the margin profile of SNCR that would be even more impressive on larger scale.

On an interesting sidenote, IPO bookrunner Goldman Sachs still owns 4.5% stake in the company.

- Longbow Research is out with a nice call on Hansen Natural (NASDAQ:HANS) saying the co ikely experienced a material volume boost during late 4Q07 ahead of January 2008 price increases. They are raising 4Q07E EPS by $0.02 to $0.39 in order to account for this volume lift.

According to their C&G survey findings during 4Q07, Monster continued to improve its position on the shelves and market share blips from Red Bull's 16.9 ounce launch simply represented a numbers squeeze.

For 2008, firm's distribution channel checks indicate HANS's ~6% price hike on Monster 16 ounce stuck at the first of the year, which could drive $0.20+ of upside versus 2008 EPS estimate of $2.20. On the cost front, HANS is less exposed to negative trends facing the Coke and Pepsi bottlers in higher PET costs.

With the stock down 25% since Q307 earnings, the firm recommends purchase. Their price tgt is $66.

Notablecalls:Man, Longbow's 2008 EPS est is above consensus & now they are saying they see upside to it! The stock has been crushed lately and I think this call will generate strong buy interest.

- Allscripts (NASDAQ:MDRX) is down 25% in pre mkt trading after reporting results that were below expectations. There is some pretty nasty analyst commentary out there with Deutsche cutting their rating and Piper Jaffray cutting their tgt to 19.45 from $29 (also removing from Alpha List, keeps Buy).

The backlog didn't look good but I suspect that here @ $11.70 it's all discounted (and then some). So I have made a small purchase there.

Going against consensus here like I did with NILE yday.

The stock is a mean bouncer and has a close to 25% short interest.

- General Probe (NASDAQ:GPRO) is down following earnings but given very positive analyst commentary this morning I think it's a good bounce candidate.

BofA is out with call titled: GPRO: Go! Go! Go! Go! Go!; Buy With Conviction. Their tgt is $74.

Several firms are commenting on Baidu.com (NASDAQ:BIDU) this morning after the co issued in-line results and weaker guidance last night:

- RBC Capital is upgrading their rating to Outperform from Sector Perform, while lowering tgt to $361 from $400 tellin investors to look through the 1Q08 guidance and focus on what is important. They believe 1) the long-term investment thesis remains intact, 2) the company continues to dominate the Chinese search market, and 3) over the longer-term should add another growth driver as it monetizes its nonsearch traffic through display and other formats. 1Q08 guidance was lower than expected, but as we exit 1Q and enter 2Q very few companies on the Internet enjoy every secular, macro, and seasonal factor working in their favor and fewer have Baidu's growth profile.

- Citigroup notes that early last month when they took Baidu off our Top Picks list and downgraded it to Hold, their concern was primarily that incremental spend on Japan and C2C would hit margins, but we were also concerned about the potential of slowing rev growth as well. Some of those fears came to fruition today as Baidu guided for between US$25m and US$35m in "P&L" impact from Japan+C2C in 2008. Combined this with disappointing rev guidance for 1Q, and the firm expects Street estimates have to come down.

The headline EPS beat is US$0.17, but the firm estimates that US$0.20-0.23 of this is due to: 1) a one-time tax rebate; 2) positive current effects from RMB appreciation; and most significantly, 3) the company's under-spent by ~US$5m on Japan vs. their 4Q guidance (and which is offset by the huge 2008 Japan spend guidance). Maintains Hold and $350 tgt.

- Goldman Sachs is lowering their tgt to $280 from $310 saying they believe the law of large numbers, rather than snow storms, could be the primary reason why Baidu is guiding for a decelerating yoy growth rate in 1Q08 versus 4Q07.

Notablecalls: Looks like RBC Capital's Stephen Ju was right on the money when it came to Q1 guidance. He was wrong on the sentiment side, though. And so was I. BIDU ended up 20 pts in after market despite a 20+ pt run during mkt hrs.

Which now pegs the question- is there any upside left here?

With GSCO cutting their tgt to $280 and most of the EPS upside coming from non-operating sources, it's sure a strech here.

I suspect shorting around $280 this AM represents a good risk/reward scenario.

- RBC Capital is out with a cautious piece on Baidu (NASDAQ:BIDU) noting the co reports its 4Q07 after the close, and 1Q08 will be the main focus given recent concerns around the possibility for a conservative outlook due to the 1) change in senior management and 2) recent snowstorms affecting power and access. Firm says they had expected 1Q08 to post a sequentially positive comp given that the company is not executing its way through a ranking algorithm change or a major sales force reorganization like last year, but they believe 1Q08 guidance could call for revenue flat to down 2%-3% sequentially.

They are tweaking their 1Q08 as well as out year estimates given the likelihood for conservative guidance. However, they remain positive on the long-term fundamentals of the company given its dominant share of the search market in China as well as the secular and macro benefits it continues to enjoy. Maintains Sector Perform.

Notablecalls: Phew, imagine what will happen to BIDU stock in case of conservative (below consensus) guidance. RBC's Q1 rev est used to be at $451 mln yet now it stands at $431 mln.

Take First Solar (NASDAQ:FSLR) as an example. The stock got killed yesterday. Was it because of the negative yield rumours? No way! The yield rumors accounted for not more than 5pts of downside (Which we caught on NCN, btw!). It was because we had Broadpoint out with a call yesterday morning saying there likely wouldn't be much upside to ests. In this market people tend to sell first and ask questions later.

Well, Broadpoint is looking a bit stupid this morning after nice numbers out of FSLR (stock up close to 15% pre-mkt). But hey, they kept their Buy rating so it's not that embarassing.

- Oppenheimer is slashing their 1Q08 estimates on the brokers by 40% on average to reflect a sudden and material decline in levered loan valuations. Firm estimates that the banks and brokers under their coverage have a combined carrying value of levered loan commitments of close to $200 billion, and that such will lead to $10 and $14 billion of negative corresponding marks or write-downs to the banks and brokers under coverage.

Third quarter 2007 broker earnings were dismal due largely to sizable write- downs on leverage loan inventories after the market seized up in July/August and values declined materially. Even worse fourth quarter 2007 earnings saw few write-downs related to levered loan commitments but staggering write- downs related to CDO values. Firm believes 1Q08 earnings will be impacted by both but materially by another round of write-downs to carrying valued of levered loan commitments.

1st quarter 2008 results will likely be worse than those seen in well over a decade and will surely be worse than even the lowest of the existing current estimates.

Notablecalls: I heard some rumours yesterday saying Lehman (NYSE:LEH) will pre-announce soon. Not sure if this was due to the negative call made by BofA yesterday (cut LEH tgt to $60 from $65) or because LEH is really going to pre-announce. Must say the source of the rumor has a good track.

I know I was positive on MER the other day but it's sure starting to look like I was too early. I would not be surprised to see another round of selling in the brokerage space.

Not sure people want to bottom fish here given the possibility of a large pre-announce & OpCo cutting Q1 ests by 40%.

Tuesday, February 12, 2008

- Cowen is out very positive on BioMarin (NASDAQ:BMRN) following a survey aimed at tracking the uptake of co's Kuvan. Physicians expect to test the vast majority (79%) of their patients for Kuvan sensitivity in 2008, and expect nearly one-half (45%) to remain on long term therapy. Just as important, this survey suggests likely upside to Kuvan's price. Physicians report a 55kg average patient weight, 94% compliance, and 19.5mg/kg average dose. These figures imply an average annual price per patient of $107K, well above BioMarin's guidance ($57K) and firm's estimate ($72K). It is increasingly clear to them that BioMarin will likely be one of the most attractive growth stories in biotech for the next several years.

The responses imply 2008 Kuvan revenue of over $100MM, above Cowen's $80MME, and that Kuvan will enter 2009 at a U.S. revenue run rate of over $250MM, above their FY 2009 estimate of $200MME. Moreover they imply a peak U.S. opportunity of $625MM, above their 2012 U.S. estimate of $375MM.

Cowen considers BMRN a top small-cap biotech pick.

Notablecalls: Well, it sure looks like Cowen's biotech team is on to something big here. Their estimates are now well above the consensus.

Just for comparison, Jefferies was out with a call on BMRN yesterday saying that based on their survey, they are increasing their average dose used from 15 mg/kg/day to 17 mg/kg/day, which results in an increase in the average annual cost of Kuvan from $57K to $66K. As a result, the firm increased their FY08 U.S. Kuvan revenue estimate from $61M to $71M. (Yet, Cowen stands at $100M).

I think the upside pressure in this name is just too strong to resist. These two calls will likely cause some serious buy interest as soon as today.

- Piper Jaffray's Gene Munster is out on Apple (NASDAQ:AAPL) after he and his team spoke with 20 Apple specialist resellers. Interest in the MacBook Air is high, but demand is less than the MacBook launch in May of 2006. Firm believes the MacBook is the most popular Mac.

On average, resellers are expecting a sequentially flat qtr for Macs in March vs. PJ's ests of -18% q/q.

- Broadpoint comments on First Solar (NASDAQ:FSLR) saying they recommend sitting out quarter due to excessively high investor expectations, but would be buyers on any weakness after results are announced

Firm expects strong results and guidance, but believe plans for an additional factory, a large 100MW+ system contract, or significantly higher 2008 guidance are necessary to move shares higher.

Monday, February 11, 2008

- Citigroup is out with a major positive call on Merrill Lynch (NYSE:MER) saying they think the co can double earnings power over the next couple of years. They anticipate that the franchise could earn in the $10b-$12b range (vs firm's 2008 forecast in the $5b range) by capitalizing on several billion-dollar revenue opportunities in each of its major businesses.

Firm's analysis deconstructing Merrill's ROE shows that the franchise could generate 20%+ ROEs over the cycle, which could result in a $100+ share price.

Wealth Management could add $6b of revenue over the next 5 years, comprised of $4b from the US franchise and $2b from growing the international franchise.

John Thain, Merrill's new CEO, is the catalyst to unlock the earnings power of the franchise which would then result in meaningful value creation. In Citi's view, Merrill will successfully execute on 1) creating a risk management infrastructure / culture that won't result in outsized losses, 2) execute on top line growth initiatives across the major businesses, 3) leverage the untapped earnings power inherent in Merrill's franchise by removing silos and building bridges across the wealth management and institutional businesses.

Reits Buy and $75 tgt.

Notablecalls: This is bound to generate substantial interest, given the overall negative sentiment in the financials. I suspect we have started climbing the "wall of worry" in many of these names.

All of these names have written down most of their CDO/subprime assets and aggressive writedowns may potentially lead to write-ups down the road. Call me an optimist but these write-ups could come as soon as over the next couple quarters. Imagine Merrill suddenly beating estimates by a mile. Wanna be short the name when this happens? Thought so.

- Apple (NASDAQ:AAPL) is added to Citigroup's Top Picks Live list with a $212 tgt. AAPL is the first addition to the list by the PC & Enterprise Hardware team.

- Morgan Stanley is positive on Dry Bulks.

Firm sees upside in the dry bulk sector into a likely firming in the BDI over the next couple of months. The conclusion of iron ore contracts with China continues to loom as a catalyst for the Dry Bulk group. In their view, anticipation of stronger vessel demand on the back of contract settlement may continue to lead shares to shrug off pressure from incremental negative economic data points. In addition to GNK, they also highlight QMAR as an attractive way to gain exposure. In the tanker sector, valuations remain below liquidation values, while the market outlook in firm's view remains relatively robust from ship owners.

The WSJ reports that Motorola (MOT) and Nortel (NT) are in talks to combine their wireless-infrastructure units in a joint venture. The talks, which are separate from efforts also under way at Motorola to possibly shed its handset division, show the steps Motorola's new CEO, Greg Brown, is contemplating to restructure the telecom giant.

According to the WSJ, Yahoo’s (YHOO) rejection of Microsoft (MSFT) buyout bid will test whether the software giat is willing to pay a lot more for the Internet co, or risk a truly hostile takeover attempt. Microsoft may sweeten its offer, say people familiar with the matter. But any increase is likely to fall short of what Yahoo's directors believe would fairly value the co, setting the stage for a protracted battle. Ppl close to Microsoft say the co is reluctant to launch a proxy fight to push out Yahoo's board. A fight could increase the odds that key Yahoo employees will leave the co. It is more likely to pursue less-hostile options, such as recruiting big shareholders to put pressure on Yahoo to negotiate with Microsoft for an acceptable price.

The Financial Times reports that Microsoft had been willing to pay $43 a share a yr ago, when Yahoo was trading at about $28. Steve Ballmer has already signalled his co’s determination not to take “no” for an answer. In his letter making the offer, he said his co “reserves the right to pursue all necessary steps”. Microsoft has a team of advisers in place for any proxy fight. It includes Alan Miller of Innisfree, the proxy solicitation firm, and Joele Frank, the New York M&A public relations specialist, as well as financial advisers from the Blackstone Group and Morgan Stanley.

“Heard on the Street” discusses Cardinal Health (CAH), saying that the co appears to be getting back on its feet, and that could give a shot to its ailing share price. The New Year has brought some hope: Last month, Cardinal appointed George Barrett as vice chmn and CEO of its drug and medical-supply distribution division. In addition, the co has renewed a contract with one of its biggest customers and has a generic version of a cardiac drug about to hit the shelves. Relative to its competitors, Cardinal has had a weak generic-sales program, a situation almost certain to improve with Mr. Barrett's arrival. "He's a solid exec who has incredibly strong independent supply-chain relationships," says Randall Stanicky, of Goldman Sachs. Mr. Stanicky recently reaffirmed Buy rating.

The stock of International Speedway (ISCA), which has skidded badly since last summer, could jump about 20%, to 50, as the company leaves some problems behind and benefits from long-term TV contracts.

At 38.70, or 17 times earnings, Femsa's ADRs (FMX) are cheap. Some fans think the stocks could be worth about 50, while a sum-of-the-parts analysis suggests a price of 64.

According to the Barron’s, in a one year span, best stock picker is Bear Sterns, with 2007 return of 21.98%. In a 6mo span, also Bear Sterns beat others with 12.08% return. While Goldman Sachs leads 3y and 5y lists with 55.39% and 150.91% returns, respectively. Morgan Keegan focus list lost a painful 17% in the 2H07.

SunPower's (SPWR) stock was cut in half after the solar bubble burst. Now it could double, with earnings growing 40-50%. The US Senate tried to attach an extension of the solar tax credit to the economic stimulus bill, but it failed to pass. While an extension could be reintroduced anytime, it most likely will be part of a package considered in the 4Q that would extend the wind and solar tax credit and the R&D tax credit, and apply a "patch" to the dreaded alternative minimum tax. "There's so much bipartisan support for the wind and solar package" that there's an 85-90% chance it gets passed by yr end, says Daniel Clifton, of Strategas Research Partners.

“The Trader” column highlights Plum Creek Timber (PCL), saying that the co’s 4.1% yield is not too shabby in an era of declining bond yields and slashed interest rates. Decimated demand has hurt lumber prices, but Plum Creek was able to sell land to prop up profits. New construction and remodeling use up about 40% of timber volume produced, but nearly 2/3 of it in dollar value, and a prolonged housing slump will hurt. Yet Street analysts seem to have factored in only a brief blip in profit growth, expecting EPS to pull back to $1.26 this yr before promptly rebounding to $1.52 by ‘09. The board recently announced a 42c qrtrly dividend, but option prices have begun to anticipate a possible trimming of the payout to 29-37c by mid-Aug. Jim Grant, of Grant's Interest Rate Observer, recently tried to steer timber-REIT investors toward smaller rival Potlatch (PCH) instead. Among other things, Plum Creek has "much greater exposure than Potlatch to the vicissitudes of real estate development," he notes. Plum Creek looks expensive by any measure. Grant calculates the adjusted EV for each core timberland acre and finds Potlatch offers the better bargain. At 41, Plum Creek shares also trade at 3.8x book value, compared with 2.6 for Potlatch. Shares are also perched precariously at 30x cash flow, compared to about 17x for Potlatch. These numbers yell out a warning: Timber!

“Technology Trader” column discusses Akamai (AKAM), whose stock is down 45% over the past 12 mo’s from concerns over increased CDN competition, in particular price-cutting by some rivals. But Akamai last wk reported a blowout DecQ. Demand for the co's service is running high, thanks in no small measure to the proliferation of network-TV shows being streamed over the Internet. Recession? Not in Akamai's universe. "I don't think ppl can afford to cut back on Internet strategies," CEO Paul Sagan said in an interview. "My guess is that if we see a downturn, it won't have a significant impact on us." Growing at about 40%, and trading at about 20x estd ‘08 earnings, this one looks cheap.

“Technology Trader” also highlights JDSU (JDSU), whose shares are down 90% since they peaked in early 2000. Now there are signs JDSU's turnaround is finally taking hold. In an interview last week, CEO Kevin Kennedy said the co has hit 4 key milestones. First, in Dec the co won a jury trial over allegations of stock fraud related to the mammoth swoon by its stock after the bubble popped. Second, the co hit GAAP profitability for the first time without the aid of one-time asset sales. Third, the co has had 4 qrtrs in a row of positive FCF and EPS growth. And fourth, the DecQ was what Kennedy calls "the first I can remember with simultaneous improvement in GM and revs in all of our businesses." The mkt has finally sucked up most of the existing capacity that was built out during the bubble yrs. "Operators continue to respond to capacity needs and network build-outs," Kennedy says. "There is not a lot of excess capacity. Ppl are not spending money speculatively. They are spending when they can monetize it, or when they are responding to shortages." It's a fiber-capacity play, just like the old days, except now JDSU trades for well under 2x rev. With a P/E of about 20x estd '08 results, it doesn't look cheap. But it is an interesting speculative play on bandwidth growth.

Was listening to the Terra Industries (NYSE:TRA) call and about 27 minutes into the call a guy from First Capital Alliance partners asked management about the change in the partnership distribution profit sharing arrangement.

He seemed to approach it from the perspective that it would be positive for TRA (as opposed to a negative for TNH). He kept pressing management for about 5 minutes... but management danced around the question and continued to regurgitate what was released in the press release.

FINALLY the analyst said.. well... I dont want to take up any more of your time.. perhaps someone else can get to the bottom of it (and of course no one else did).

Net net..I think that the drubbing in the fertilizer stocks had more to do with the decline in TNH on Thursday than the fact that their dividend is going to be reduced.... But ultimately... going forward... investors aint gonna get the kinds of distributions that they have come to expect from recent quarters.

Thursday, February 07, 2008

Terra Nitrogen (NYSE:TNH) reported its earnings and its distribution this morning. More importantly they reported the “threshold “ level where a massive profit split change (negative for TNH) will kick in. It goes from 99:1 split to 50:50 (after the first $1.045)

First, TNH is ridiculously overpriced. It's the classic case of an unknown/unfollowed stock that stumbles out of the dark ages into a hot sector and has very little float or intelligence. It's a daytraders dream as folks go to chat boards searching for info.

TNH is an MLP . It was spun off by TRA back in 1994 . Its a single factory that churns out nitrogen based fertilizer product (UAN and ammonia byproduct). Terra Industries (NYSE:TRA) retains 75% ownership (needed to control an MLP vs 50.1% for a corp) and is the general partner running TNH. Because they lost money a few years back, profit sharing dropped to just 1% until losses in past were earned back . Those losses are very getting close to being earned back and then profit sharing soars in TRA favor with the big number being 50% of everything over $1.045 cents .

Refer to their last 10-Q where TRA management reposted this ancient profit split

The Limited Partners receive 99% of the Available Cash and 1% is distributed to the General Partner, except when cumulative distributions of Available Cash exceed specified target levels above the Minimum Quarterly Distribution (“MQD”) of $0.605 per unit. Under such circumstances, the General Partner is entitled, as an incentive, to larger percentage interests. As of September 30, 2007, the cumulative shortfall on quarterly distributions to holders of Common Units that must be paid before the General Partner receives an incentive payment was $152.9 million, or $8.18 per unit

Well, today it was announced that after the next $2.86 in distributions is paid out, (next Qtr)… the profit split will kick back in to the old profit split levels of 50:50 after the first $1.045 cent distrib.

By way of fundamentals, TNH runs at 100% production all the time so it can't produce more and if NatGas soars , its margins can crater (yes , this $130 stock traded at $3+ 5yrs ago)

I see folks on chat boards referring to TNH as a 'locked in dividend forever' and a way to cash in on the agriculture boon.

The problem of course is that TNH is no different today than it was at $3. That plant can be replicated by a competitor most anywhere NG is available.

It's a daytraders dream but I suspect 70% have no clue of underlying fundamentals. With a YoY change in avg daily volume going from 27k shares to 638k shares, short interest ratio is under 2.

I think TNH can trade below $100 as people figure this out. I will be listening to the conf call to gauge the level of investor awareness. Been painfully short awhile on this one and I have tried a paired trade (short TNH against TRA) but there really isn't any trading correlation between the two.

- Morgan Stanley notes they are surprised by the magnitude of the sell-off in NSR shares – down 25%. While they were disappointed by the 2008 guidance, mainly as it pertains to transactions volume, they believe the stock is oversold at these levels -- particularly relative to Neustar’s 20% long-term sustainable growth and unique industry positioning.

The stock is now trading at roughly 17x the low-end of management’s EPS guidance of $1.29 for 2008. This multiple is clearly below the company’s long-term growth rate of 20%. MSCO thinks the right near-term price target for the stock is $25-26, with further upside likely over the course of the year as the company executes. This near-term target assumes a P/E multiple of 20x baseline 2008 EPS of $1.29.

In their view, the guidance is very conservative -- they know that this management team is adept at the ‘beat-and-raise’ strategy. Reits Overweight and $40 tgt.

- Deutsche Bank reits Buy and lowers tgt to $35 from $42 saying they maintain their rating on the strength of its competitive position and view that the market is negatively overreacting to conservative first guidance for FY08.

Notablecalls: With the stock down 8+ pts yesterday and these defenses, we're going to see a nice bounce today. Could be 2+ pts worth.

- Morgan Stanley is yet again out positive on Garmin (NASDAQ:GRMN) saying they believe that Garmin can rally from oversold levels, potentially reaching $80-85 near term. NAVTEQ results should be positive for Garmin as NVT saw revenue upside driven by PND volumes (NVT provides almost all of Garmin’s maps). Garmin has traded down almost 9% since SiRF reported worse than expected results and is down 35% YTD.

Firm says they believe that NVT provides a better read on Garmin’s 4Q07 results than SiRF as SiRF is facing several company specific issues regarding weakness at other customers and in its newly acquired Centrality business.

Notablecalls: This is now the 2nd time Morgan Stanley has called for a rally in GRMN. The stock is currently trading around $63 and I suspect we will get the bounce the firm is talking about in the N-T. The PND space has too many bears eyeballing it and that's always a good sign.

Note that MSCO has been a bear on GRMN for quite a while and only recently turned positive.

Several firms comment on Cisco Systems (NASDAQ:CSCO) this morning after the co released its Q4 results and guidance last night:

- Goldman Sachs notes that given its poor outlook for the April quarter, they were clearly too positive on the ability of Cisco's non-enterprise line of business to offset weakness inits enterprise business. Cisco's outlook suggests a much greater degree of uncertainty than the market expected. As a result, the firm believes it will take at least another quarter or two of solid results before the stock can regain sustained positive momentum.

With that said, the stock is trading with a 7% free cash flow yield (a level that typically attracts value buyers) and 14x PE new lowered forecasts. Reducing 6-month price target to $28 from $32.

- RBC Capital notes it's not looking pretty with US enterprise customers and Cisco is pointing to top line growth of just 10% for the current April quarter vs. most views of 15%. RBC was estimating 15-16%. The outlook translates into $9.8B vs. prior consensus of $10.2B. Cisco missed its internal bookings targets for the first time in five years highlighting the magnitude and speed of the deterioration in tech spending. Projects are not being cut but deals are being pushed out and it's getting harder to get purchase orders signed.

RBC's CY08 non-GAAP EPS declines from $1.65 to $1.54 while CY09 EPS declines from $1.81 to $1.70. Shares may be close to a bottom now trading at 13-14X firm's CY08. Their FY08 revenue growth estimate is now 13%. In terms of future revenue revisions, though the environment remains uncertain, Cisco may be taking one big reduction as opposed to multiple iterations. Product book to bill was approximately 1.0

The guidance is not what we had anticipated but we believe there is an extra level of conservatism built into the outlook by Cisco. At current price points, no change to Outperform rating. Believes Cisco may retrench and begin to rebuild its backlog during these uncertain times. Tgt is lowered to $26 from $29.

Notablecalls: Not pretty, although somewhat expected, considering what the likes of Ericsson and Alcatel-Lucent had to say. With the stock trading around 7x FCF, downside is limited. What is missing is the upside. But maybe a leap of faith is needed here. Ready to take it?

As always, I have to remind you all that market rumors must be taken with a fair dose of skepticism. Most of them never add up to anything. Out of the about 10 rumours I hear daily, 1 or 2 (at best) intrigue me enough to stop and pay attention. I'm not even going to guess how many actually come to fruition. Should be a low figure.

The Take Two (TTWO) rumor caught my attention for several reasons:

- Firstly, it's likely to co is up for sale. A group of shareholders representing close to 50% of outstanding common sacked the management in 2007 and retained ZelnickMedia to manage Take Two pursuant to a management agreement.

Considering the holders include OppenheimerFunds, SAC Capital Management & Tudor Investment, I'd guess that at least some of them are bored waiting for the stock to recover and are willing to sell, provided a good price.

- Secondly, while TTWO has been plagued by several delays (namely, GTA 4 & Manhunt 2), there is some light at the end of the tunnel. It was only couple of weeks ago when TTWO announced a firm launch date for GTA, their largest revenue contributor.

- Thirdly, Viacom wants a piece of the game publishing pie. They have been buying some gaming assets over the past couple of years and recently struck an interesting deal with Microsoft that included a gaming component. Not to mention Redstone's personal investment in Midway Games (MWY).

The thing is a media conglomerate just can't go and buy any game publisher it fancies. The problem is the acquired firm could lose revenue from licensed games that are based on properties from rival media companies. Many such licensing arrangements have provisions that allow the property's owner to take the license elsewhere if the publisher gets sold to a competitor.

Take Two (TTWO) does not have that problem. Most of its games are developed internally. That's why its operating expenses have always been higher than industry average.

So, in that sense it would be a perfect fit for Viacom.

The price?

Who knows, TTWO is currently trading at a hefty discount to other large publishers. Think it goes without saying current large holders know how to bargain.

One to watch I think,

NC

Btw: I'm showing a close to 40% short interest in TTWO. With buyout rumors starting to swirl, I suspect at least some of the shorts will start feeling uncomfortable.

FormFactor Inc (NASDAQ:FORM) is likely going to be in focus this morning after reporting its CQ4 results last night. We have two firms out with downgrades and two major firms out with wonderful defenses:

- Broadpoint is lowering their rating to Neutral from Buy saying they expected the company to at least maintain its position in DRAM while taking share in the NAND Flash advanced probe card market in 2008. However, the company's failure to ramp volume production of its new Harmony probe card family has resulted in missed opportunities in both market segments. These missteps are exacerbating an already weak outlook for DRAM customer spending in 2008.

- Piper Jaffray is also lowering their rating to Neutral from Buy saying protracted the Harmony ramp delays in 2H07 have resulted in market share losses that will likely not rebound until the DRAM industry regains profitability and restarts capacity expansions and design transitions. The good news is that customer design transitions occur frequently and FORM has an opportunity to win back share in 2H (albeit at potential lower ASPs). Recommends sidelines until they see signs of improving DRAM market conditions. Expects better DRAM supply demand balance exiting 08 and continued strong Flash. Tgt is lowered to $18 from $23.

- Cowen notes FORM will likely get killed on the significant reduction in the outlook and their admission that there's been some share loss. Only time will prove that there is a secular competitive issue here or if this is simply a cyclical phenomenon. After hours the stock was indicated at $~18 or about 1.5x cash. Given that they don't expect FORM to burn cash beyond Q1, tomorrows opening will likely be a very attractive entry point but this market has yielded many cheap stocks -- some with less moving parts than FORM. Firm notes they rode this one down and we're not going to downgrade here but until visibility improves a bit they think there's little reason for most investors to play unless they are longer term value investors who can wait for this market. Growth investors (this has been a strong growth name) might punt....

- Morgan Stanley maintains their Overweight rating on FORM despite a more aggressive cyclical near-term slow-down in demand for their products given cutbacks in DRAM customer spending patterns. They remain confident in their FORM thesis as they see the company well positioned to grow in a fast growing market ~ 20% y-y (over a multi-year period) as the secular trend of improving test efficiency (through test parallelization), enabled through the use of FORM’s proprietary technology, drives above peer average growth inrevenues and profitability. Firm would be buyers of the stock on any weakness as they believe the market is overestimating the magnitude of the near-term slowdown. Their global memory team’s view on memory supply/demand indicates an improving fundamental outlook in 2H08 for memory suppliers and for FORM. Lowers tgt to $30 from $43.

- The most wonderful defense comes from Citigroup saying they suggested a month ago this wasn't going to be pretty and cut #s, but this was an unmitigated disaster and worse than they ever could have imagined. In checks around the industry post-call, in the past few weeks DRAM makers are in all-out desperation to save $ and, in some cases, are just not testing any more (thus not buying any probe cards). While pricing is also a factor here, MJC has been the only game in town at the high-end for full wafer contact and thus, FORM has been forced to concede pricing at the low-end - however, Citi thinks it's now regaining quals at high-end for Harmony DRAM. While difficult to defend the stock on near-term fundys, they think design activity at DRAM makers has accelerated in recent wks and - if it holds - adds a much stronger fundamental case for FORM as it would drive big upside to CQ2:08 revs. While massively cutting numbers (C08 from $1.62 to $0.20 and C09 from $2.14 to $1.49) due to guide, they're sticking w/the Buy given ~$14 in tang. book and ~$10 net cash (even after 1H:08 charges/losses) and ~$0.70/shr in trough ('08) EBITDA (incl. options) suggesting strong val'n support at ~$15-16 (or <10% style="color: rgb(255, 0, 0);">Notablecalls: I think that after going over the comments, most of you agree this is a very interesting situation.

Notablecalls: In a normal tape, I'd be all over FORM, calling for a multi-point bounce. Yet, the action in SIRF has made me a bit more wary.

Here's how I see it:

- Weakness in DRAM is no surprise, given the decline in spot prices and results/comments issued by several DRAM players.

- On the other hand, several DRAM makers have been producing below cash cost, which has historically been a sign of bottoming in the sector. A kind of a Darwinian appoach. Micron (MU) stock has been on the rebound lately, if you haven't noticed.

- FORM management was smart enough to raise cash when the stock was still trading close to $40, so they have $10-12 bucks worth it on their balance sheet. It's kinda surprising we didn't get a buyback announcement last night but I bet we will see one in the n-t. This would surely help the stock.

- FORM continues to be an analyst darling and a mean bouncer. It's now trading a tad below its 5 yr (all-time) lows. My gut tells me it's a keeper at around 17. Let's see how it works out.

The WSJ reports that 2 yrs after Google (GOOG) began a big push in China, Baidu.com (BIDU) continues to dominate the country's search mkt, thanks in significant part to a controversial and legally risky offering: searches for free, unlicensed music downloads. Now, Google is preparing a counterstrike. The co is in the late planning stages of a joint venture with a Chinese online music co that would permit it to provide free, licensed, music downloads in China. The service, which is likely to offer access to tunes from three global music co’s as well as dozens of smaller players, could start in the next several wks barring any last-minute hiccups.

“Heard on the Street” column discusses Lennar (LEN), saying that the co has found a way to salvage something from the huge losses it incurred by overpaying for land during the housing boom. Late last yr, the co sold a big swath of land for $525m to a partnership that it formed with Morgan Stanley. At first glance, the deal seemed terrible for Lennar, which had the land valued on its books at about $1.3bn. But the deal's structure allowed Lennar to recognize a big loss that it applied against taxes paid the previous 2 yrs. The result: Lennar is expecting a tax refund of more than $800m. As an added bonus, b/c of the way Lennar and Morgan Stanley structured their partnership, Lennar still effectively owns 20% of the land. It also has a 50% voting interest in the partnership, meaning it will have a say in how the land is developed. That means Lennar gets the tax loss, but still holds an interest in the land on its books. "That's the holy grail," said Robert Willens, of Robert Willens LLC. "The accounting is saying that they're not really selling it, whereas the taxes are more formal in the way they look at it."

“Inside Track” section reports that the purchase of $2m of E*Trade (ETFC) shares by co insiders reflects their confidence in the online broker's potential to turn itself around. Ten E*Trade insiders, including its chmn and its acting CEO, bought 474K shares of the co last wk. The purchases show that the insiders "have confidence in the turnaround plan we laid out and the future of the franchise," E*Trade spokeswoman Pam Erickson said.

Barron’s Online discusses Macrovision (MVSN), whose shares are down almost 37% since Dec. 6, the day before the co announced it would acquire Gemstar-TV Guide for $2.8bn, twice the mkt cap of Macrovision itself at the time. Clearly, some investors wonder whether the deal, which will saddle Macrovision with lots of debt, is a case of a co biting off more than it can chew in a bold effort to reinvent itself. But the deal, which is expected to be voted on by shareholders in April, is better financially than some suspect. And it may yet help Macrovision become an important player in the coming age of digital downloads and Internet streaming video. "The combined business will become one of the largest technology intellectual property plays in the public mkts," wrote Jefferies analyst Ross MacMillan in a recent note.

The Financial Times reports that Temasek, the sovereign wealth fund, and Germany’s Tui are in talks to merge their shipping operations in a deal that could see the Singaporean group take a stake of more than 20% in the travel group.

According to The Inquirer Uber Geek Linux Torvalds said that Apple's (AAPL) latest version of its OS-X operating system Leopard was 'crap' and in many places much worse than Microsoft's Vista.

Tuesday, February 05, 2008

Went long on SIRF at $ 9.00. Lost $1500.00 at $8.46. Stock never really stabilized and slid further.

However, was able to recover same amount on long - SNCR stock.

Thanks,

C.S.

Notablecalls: Yeah, messed up on SIRF. Looking back, I should have issued a short sell call on it when it was trading around $10 in the pre-mkt. Going against 6-7 downgrades is just foolish. Sometimes is just doesn't pay to be a contrarian.

It's pretty tough out there.

Cutting back average position size is usually the best way to survive periods like this one. It all comes down to money management, believe it or not.

Couple of firms comment on Synchronoss Tech (NASDAQ:SNCR) this morning after the co issued its Q4 results and guidance last night:

- Goldman Sachs notes that while the headline revenue guidance will disappoint, they would be buying the stock on weakness for the following reasons:

1) They believe the vast majority of the changes relate to the company's support of the iPhone where automation rates have been higher than expected (benefit to margin), but activation volumes a bit light and more uncertain than expected (causing more caution on revenue).

2) hey believe the stock's significant underperformance into the quarter (down 34% YTD) already anticipated weaker 2008 numbers, and while the revenue was light, the gross and operating margin outlook are stronger than expected and are a direct offset to the revenue softness.

GSCO's rating remains Buy with a $38 tgt.

- ThinkEquity reits Buy but lowers tgt to $48 from $55 saying they anticipate that the stock will fall initially before focus returns to the continued strong results and remarkably strengthened margin profile. Ramping Sprint revenues and business-grade services (small business and enterprise) round out the current consumer-centric profile, and should bring greater revenue diversity by late 2008.

Firm notes they previously reduced their revenue expectations for 1Q and full year 2008, anticipating guarded guidance; they were surprised at how soft the actual revenue guidance was, with 1Q at $30-32M and the year at $151-160M. Interestingly, primary blame was fixed on the sunset of some premium SLA payments, which the firm expected to reduce margin expectations. Rather, full-year margins were guided up: GM at 56-58% and OM at 31-33%.

Notablecalls: I listened to the conference call last night and the mgmt sounded very optimistic about the L-T future despite what might be viewed as disappointing revenue guidance. The main reason for the revenue shortfall seems to be change of revenue mix with some of the transaction no longer needing SLA (service level agreement) treatment. SLA transactions have higher transaction prices, but lower gross margins. As a result, the revenue is lower than previously expected, but higher gross margins will result with no change to the bottom line.

The stock has been killed into the earnings so I suspect at least some of the shortfall was expected. I believe the initial knee-jerk reaction to revenue guidance will provide an excellent opportunity for bounce play. After all, the shortfall of SLA transactions might be viewed as a reminder of just how good software company Synchronoss really is. No service needed, it's automatic!

Lack of international business an slow ramp of Sprint may be viewed as a slight negative, but that shouldn't come as a surprise. Change of the platform is a major move and cannot be done in a breath. Mgmt still sounded really optimistic about both opportunities in addition to seeing still huge upside to the AT&T.

Be early and buy it for the bounce. I suspect it will go green today. 22% short interest sure will help.

- Citigroup is out positive on Research in Motion (NASDAQ:RIMM) after hosting an investor call on Feb 4th with the head of Citi's BlackBerry Program that yielded valuable insights from a key decision-maker within one of RIM's largest customers. Reiterates Buy and $140 tgt.

Key Takeaways - 1) Productivity benefits shelter RIM from layoffs as RIM increasingly is viewed as a non-discretionary spend. 2) Penetration rate of 10% does not suggest saturation. 3) Replacement rate is surprisingly low (avg. useful life is about 2 years). 4) Very low re-deployment of deactivated devices (~5%) further mitigates risk from financial services. 5) MSFT Exchange 2007 not a material threat for some time. 6) Competitive solutions from MOT and NOK do not seem compelling currently.

Firm believes the recent volatility and pullback in RIM shares has been largely due to macro uncertainty and stock market jitters. They note that RIM posted strong Nov-Q results and guidance in Dec despite a similar same macro backdrop.

Overall, they believe the points brought up during the call are highly supportive of their bull case on RIM.

Notablecalls: I think this call warrants some attention as the stock looks to be bottoming here. There has been lots of neg chatter regarding RIMM's fin. exposure (12% of revs) but the stock is refusing to go down. That indicates to me that at least a s-t bottom is in.

Now the attention will turn to growth opportunities in Europe and Asia.

The Boston Globe reports that Yahoo (YHOO) mgmt is considering revisiting talks it held with Google several mo’s ago on an alliance as an alternative to Microsoft's bid, which, Yahoo mgmt believes undervalues the co, the source said. A second source close to Yahoo said it had received a procession of preliminary contacts by media, technology, telephone, and financial co’s.

The WSJ reports that there are signs that some of the biggest new places where consumers are flocking on the Web, social networking and video-sharing sites, are yielding ad rev slower than some Internet co’s had hoped. The latest warning that the hottest Web properties are proving difficult to make money from came from Google. While announcing disappointing 4Q earnings, Google execs said the co was having a harder time than it expected generating ad rev on social-networking sites and figuring out the best ad formats for YouTube. Facebook also has been publicly grappling with how to make money amid its massive spurt in usage. Microsoft, which owns a 1.6% stake in Facebook, has a long-term deal to sell ads that appear on the site, and analysts est that arrangement is losing money for Microsoft. "It's taken longer than I thought for us to find the right combinations" of ad formats, said Google CEO Eric Schmidt last wk, referring to advertising on YouTube. But, he said, he believed it "will ultimately be very, very successful for [Google] and the industry."

According to the WSJ, in an acknowledgment that the system it used to rate billions of dollars of mortgage-related securities was potentially flawed, Moody’s (MCO) said it is considering a new way of rating those and other sometimes-volatile structured finance vehicles. The credit-rating firm is considering an overhaul of its rating procedures that could include new labels to help investors distinguish collateralized debt obligations and other structured-finance investments from corporate bonds and Treasury securities. One of the most significant changes being considered by the parent of Moody's Investors Service: a new, 21-point numerical scale to rate structured securities. Moody's familiar letter grades, from triple-A to single-C, would continue to be used for corporate and govt bonds. More broadly, the ratings firm is trying to decide whether to add warning labels that essentially acknowledge the limitations of its ratings. "We've been taking a hard look at the things we do," said Richard Cantor, of Moody's.

“Heard on the Street” column out saying that at first glance, General Motors (GM) has gotten off to a relatively good start in ‘08. While other auto makers' sales slipped in Jan, GM bucked the trend and posted a gain. Fears have eased about a possible bailout for the mortgage arm of GMAC. Rather than hit the accelerator, however, investors would be wise to tap the brakes. GM still has serious kinks in its core automotive business in N-America, and, despite some big cost cuts, it may be challenged to come close to breaking even this yr. The rise in Jan sales in the US came in part as a result of a surge in rebates and incentives, which erode profit margins. GM may have to keep incentive levels high through the yr to lure buyers into showrooms. Sales of its most-profitable products, trucks and SUVs, are declining, while sales of cars, which generate less profit, are increasing. "To be an attractive stock, they've got to get N-America above break-even and in the 2% margin range," said Lehman analyst Brian Johnson.